Los Cabos - European leaders rejected pressure to deliver quick new measures to fight their debt crisis at a summit of world leaders and promised to press on with a longer-term plan for closer economic integration in the hope that will settle jittery markets.
European countries signaled to the Group of 20 that they was considering concrete steps to integrate their banking sectors, a major reform sought by the United States and other nations to break the cycle of highly indebted countries rescuing failing banks, which only pushes governments ever deeper into debt.
The two-day meeting, due to end on Tuesday, took place with financial markets tense. Risks grew that Spain, the euro zone's fourth-largest economy, would need a full-blown international rescue as its longer-term debt yields hovered above seven percent, a level that has forced other euro countries to seek bailouts.
French President Francois Hollande said he and German Chancellor Angela Merkel, central players in a European crisis that has run for more than two years, were determined that the euro zone come up with its own solutions.
“Mrs. Merkel and I know that Europe must have its own response,” he said on the sidelines of the G20 at this Pacific Ocean resort. “It must not be given to us from the outside.”
“The IMF is not there to backstop the euro zone even if it has done so for some countries, as we saw in Greece,” he added.
G20 leaders and the International Monetary Fund have pressured Europe, the world's richest region, to throw more support behind indebted euro-zone members and lay out a clear timeline for building financial, fiscal and political union - steps they view as crucial to saving Europe's monetary union.
Greece, Ireland and Portugal, overwhelmed by debt, have resorted to international bailouts and the euro zone last week pledged up to 100 billion euros to shore up Spain's banking system. But investors see these as stop-gap measures until Europe commits to deep budgetary and political integration.
This would require euro zone nations to give up more sovereignty and share economic risk, steps that EU leaders say will take time among the 17 democracies that share the currency, especially for Germany which would foot the largest bill.
The dangers that Europe's escalating debt crisis would drive the global economy back into recession for the second time in less that four years dominated the summit of G20 leaders of industrialised and developing nations, which represent over 80 percent of world output.
Under pressure from financial markets and anxious world leaders, Europe agreed on Monday to move first towards a federal banking system.
Among commitments in a draft G20 communique obtained by Reuters was a pledge to consider concrete steps towards a “more integrated financial architecture” in Europe that would include common banking supervision, resolution of failed banks and guarantees for bank depositors. Thes e steps would help break the link between government debt and banking problems.
European Union Council President Herman Van Rompuy underscored Europe's earlier commitment to launch the process in June and finalise it before December. The EU holds a summit on June 28-29 to discuss its next steps.
“I will propose building blocks for deepening our economic and monetary union so that we can show to the rest of the world and to the markets that the euro and the eurozone is an irreversible project and that we want to deepen it and to give it a strong policy infrastructure,” Van Rompuy said in a video message posted online.
Canadian Prime Minister Stephen Harper kept up the pressure on Europe. “ What will be important, what we'll be watching for next week and going forward will be the concerted, coordinated action that will actually make these things happen,” he said.
A top US official acknowledged that bolder action from Europe will have to wait for the EU summit.
“But we do expect to see a clear direction coming out of Los Cabos. European leaders are pledging to do all the necessary measures to safeguard their monetary union,” said Treasury Department Under Secretary for International Affairs Lael Brainard.
Four areas are under discussion - Greece working on reforms to stay within the euro zone; building a closer financial union; effective and credible financial backstops to relieve market pressures on Spain and Italy's borrowing costs; and a shift by Europe to support growth alongside austerity measures, she said.
One EU official said that banking union can move most swiftly while the vision of European fiscal union will take longer to realise, requiring intense political discussion. “It cannot be done from morning to night,” the official said. - Reuters